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Home > How is Real Estate Crowdfunding Advantageous?

How is Real Estate Crowdfunding Advantageous?

The real estate crowdfunding process is an way to fund an investment in real estate by securing a tiny amount of money from a variety of investors.

From the perspective of developers The crowdfunding platform gives the developers access to networks made up of friends, colleagues families, as well as the general public via websites like LinkedIn, Facebook, and Twitter as well as various crowdfunding platforms that are available online. This allows real estate developers to expand their possible investors and to fund projects they would have difficult financing through traditional channels.

From a perspective of the investor from a perspective of the investor, crowdfunding gives investors with access to a greater number of opportunities for investment, and lets them invest their money by dividing it into smaller investments, and thus increase their diversification.

Although real crowdfunding for real estate has existed in various forms for many years, it’s only recently gained popularity, mostly due to the rise of online crowdfunding platforms and opportunities.

For investors, in order to succeed with the real estate crowdfunding, it is essential to select the best crowdfunding platform. When you use crowdfunding to make an investment in real estate, you’ll have access to the whole real estate market for very little funds.

The real estate market is gaining momentum with crowdfunding. This has helped the improvement of the process over the last few years and has led to the development of accessible platforms. Although crowdfunding can be a fantastic method to get involved in real estate investments without having to invest any significant amount of money, there are pros and drawbacks which you need to be aware of prior to you attempt it. The following article takes a look at the pros and pros of crowdfunding for real estate that can aid you in deciding whether this investment strategy is the right one for you.

What are the advantages of real Estate Crowdfunding Beneficial?

1. Portfolio Diversification

One of the biggest advantages of crowdfunding in real estate is the ability to participate in diversification of your portfolio. When you diversify your portfolio you’re taking the risk out of from investing in a single asset by spreading the risk over multiple investments. Should one or more of the investments is to be unsuccessful, you’ll have your portfolio of investments will be divided among a number of investment options. To illustrate the benefits of this, you can make an investment of $100,000 in investment A, or put the same amount in increments of $20,000 across investment A, B, C D & E. If you invested only in investment A and the investment failed completely the investment would be worth $100,000. If you had spread the same amount in five investments, and only one was unsuccessful, you’d only lose the sum of $20,000.

2. Accessibility

The opportunity to invest in real estate is now easier with crowdfunding. Private real estate investments were only accessible to high net-worth investors with the capital and connections to gain access to the investment. Due to changes in the law and the rise of crowdfunding platforms online they are no longer obstacles to the market. The entry point to the market for real estate investment is less than it’s ever.

3. Geographic Diversification

Diversification of portfolios is among the main benefits of investing in real estate through crowdfunding, a different and significant advantage is the possibility to get geographic diversification from your investment. The reason geographic diversification is essential is the fact that different regions within the property market could be very different in relation to one another.

Although the market for real estate in one location could be strong but it’s also possible that the market in another area may experience a major decline. If you decide to put all your funds in one area there is a chance that you’ll earn lower returns solely due to issues unique to the market, but don’t have an impact on the overall market. If you invest in real estate investments through crowdfunding you’ll be able to invest in a specific location.

4. Passive Investment Vehicle

Another benefit when investing in real property with crowdfunding is that it’s an investment vehicle that is not actively managed in contrast to more traditional investment vehicles in real estate like direct ownership. For those who invest in regular investments in real estate, they typically must spend a significant amount of period of time managing property in order to ensure that it is constructed on schedule and to meet the specifications, and take on all the risks that come with it. With real estate investments that are crowdfunded you’re investing in an independent real estate operator or developer who takes care of all the work. You’re relying on the operator or developer will complete all the necessary work in a timely manner and within budget. This means that you won’t have to endure the stress in managing the building. This allows you to concentrate on other investments.

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5. Small Investment Size

If you’ve never previously had the opportunity be a real estate investor due the amount of money required for a typical real investing, crowdfunding gives you the chance to become an investor in real estate due to the minimal investments required. In reality, many crowdfunding platforms allow investors to invest of just $500. There is no need to have tens of thousands to hundreds of millions of dollars which would often be needed to buy an investment property for real property. A smaller investment lets you “tip your toes in the water” when you’re brand novice to investing in real estate or to achieve greater diversification.

What is the advantage of the Real Estate Crowdfunding a disadvantage?

1. Lower Relative Returns

While crowdfunding in real estate is a great option however, there are some disadvantages you need to be aware of prior to when you invest. One of the potential downsides is that your returns is usually lower than the one you’d receive when you invested directly in the real estate via ownership. The reason for this is that the developer or the owner in which you invest has to earn money as well. The return on investment typically will reflect this fact. The actual amount you earn is contingent on a variety of factors, including not limiting it to what type of investment it is, equity or debt investment, or the final achievement that the venture has. If your real property investment proves to be profitable it is possible to anticipate a return of 8-10 percent on a debt investment and 18-23 percent for equity investment.

2. Illiquid Investments

Another disadvantage to investing through crowdfunding is that the kind of investment is thought as an investment that’s not liquid. The investments can’t be easily sold for cash when the demand arises. A buyer needs to be secured to purchase the property you’ve made an investment in. This will take a substantial amount of time and can make that the price of your property to decrease in time. In the event of an emergency then it may be impossible to make a withdrawal from the investment.

3. Inadequate Control

If you’re looking to gain complete control over the investments you make, then real crowdfunding in real estate might not be the right choice for you. After you have made the investment via crowdfunding, the construction and management of the home will have to be handled by an outside party. However, traditional types of investment give investors the ability to oversee the project themselves.

If you’ve successfully managed significant projects before and believe you can effectively manage the real estate development process using a traditional method of investment can permit you to take greater control over the process of development and can help you get the return you’re hoping for.

The Bottom Line

Although crowdfunding for real estate and investing might not be suitable for everyone but it is an excellent way to begin investing with real estate and without having to invest a large sum of cash. Making less money in the investment implies that the risk is generally be less. Before you invest in real estate using crowdfunding, it’s essential to be aware of the advantages and disadvantages associated with crowdfunding. Armed with this knowledge you’ll be able make a risk assessment of your investment.